The head of an Abu Dhabi real estate firm backed by the Mubadala Group has predicted Dubai’s property sector will hit another slump in 18 to 24 months, saying the change was inevitable in an emerging market.
Speaking on a debate panel on the first day of Cityscape Global, Faris Mansour, director of Mubadala Pramerica Real Estate Investors, which is 50:50 joint venture between the Abu Dhabi investment vehicle and Pramerica Real Estate Investors, said “there’s no reason why as an emerging market we should expect there to be 10-year real estate cycles”.
He said emerging markets, moved in short, sharp cycles, reflecting the movement of capital, as proven over the years around the world.
“We should expect that to happen here as well,” he said.
“And that’s not to say it will fall necessarily as it did before. But it will fall, it will correct and this is something we should all expect to happen and I expect it to happen in the next 18 to 24 months… as capital becomes more expensive globally.”
Mansour said real estate was linked closely to the pricing of capital, which had been at its cheapest rates for about 10 years globally.
“We expect that that will change at some point,” he said. “The massive use of capital at emerging markets will eventually raise the cost of capital over time. That cost of capital will have a direct effect on real estate.”
He said investment in the Dubai property market as a result of the Arab spring was also temporary. As seen previously, as soon as the issue of liquidity emerges, that capital would move on to other markets, he said.
Bahrain Bay CEO Robert Lee, who was speaking on the same panel debate, said higher property price increases were happening in markets such as Sydney, Hong Kong and Shanghai and Dubai was “benefiting from a global phenomenon”.
He said Dubai was entering a precipice where “the economics of reality and the prices don’t jive anymore”.
“This is where we are and I think in the next year or two we’ll see a definite correction in prices,” he said. “Real estate, with all due respect, is a cycle business.”
Miguel Guadalupe, chief operating officer at Pacific Ventures, which entered the Dubai market after 2008, said it was seeing end users rather than “flippers”.
He said feedback, including from other developers, was that they were not merely investors but families who wanted to live in Dubai.
Jammal Hammoud, CEO Milestone Capital US, said the price increases of the past 12 months were not sustainable and were the result of a “glitch” in supply over the past four years.
“For the past four years there has been no growth,” he said.
He also said geopolitical issues had seen investment in Dubai. “This is unsustainable; the situation here is going to change.”
However, Tariq Ramadan, chairman of the UAE’s Tharaa Holding, said he believed the property market was “definitely in recovery” with prices at 2007-2008 levels that “in my opinion are sustainable prices”.
“Everything is picking up in Dubai and that’s driving sustainable growth and demand,” he said.
He said he believed speculative buyers existed for about 10 projects under Damac and Emaar. This compared to 200 projects between 2006 and 2008 where speculators were very active.
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